Bernanke: Fed Nurtures Links with Community Banks

Bernanke: Fed Nurtures Links with Community Banks

The Federal Reserve places great importance on its relationship with community banks and seeks to maintain open and consistent communication with smaller institutions, Federal Reserve Chairman Ben Bernanke told attendees at the Independent Community Bankers of America National Convention in Nashville, Tenn., on March 14.

In a prerecorded video, Bernanke enumerated the various channels through which the Fed pursues dialogue with community bankers. He also discussed the challenges smaller banks face and summarized the improving state of community banks nationwide.

"I think we would all agree that two-way communication between regulators and community banks is critical," Bernanke said. "Banks need to understand supervisors' policies and expectations, but supervisors must also listen to and understand banks' concerns."

Fed stays in touch with small banks through special channels
The Fed stays in touch with smaller lenders through numerous vehicles. One is the recently established Community Depository Institutions Advisory Council (CDIAC). The council's members come from smaller banks, credit unions, and savings associations. Each of the 12 regional Reserve Banks, including the Atlanta Fed, maintains a local advisory council, and a representative from each local council serves with the national group that meets with the Federal Reserve Board twice a year.

These councils bring valuable intelligence to the Fed. For example, based on input from the CDIAC, the Board of Governors is working to clarify which banks will be affected by new regulatory proposals and final rules. In addition to the advisory council, the Board of Governors in 2010 set up a subcommittee to review policy proposals for their potential effect on the condition of, and the regulatory costs to, community and regional institutions.

Community banks meeting challenges
Regarding the challenges smaller banks face, the chairman noted that their range of profitable lending activities is narrowing. As larger banks have used their greater scale and pricing power to take over volume-driven businesses such as consumer lending, community banks have tended to specialize in other areas, including loans secured by commercial real estate, Bernanke noted. "That said, I know that community banks are continuing to look for ways to prudently diversify their revenue sources," he said.

Community banks appear to be meeting these challenges, the chairman remarked. Profits rose in 2011 from the year before, while asset quality and capital ratios also improved.